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Be wary of complex carbon caps

The global-warming fight can't wait to work out the kinks in a cap-and-trade scheme.

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Congress may move soon to tackle global warming. The boldest action in play would set limits on carbon emissions while allowing cleaner companies to sell "permits" to the worse polluters. But lawmakers should be wary: Europe's record with "cap and trade" is wobbly, at best.

One leading bill, sponsored by Sens. Joseph Lieberman (I) and John Warner (R), sets a cap-and-trade provision for the industries – transportation, electric generation, and manufacturing – that account for about three-quarters of all greenhouse-gas emissions. It aims to reduce US emissions by 63 percent from 2005 levels by 2050. That's less than the 80 percent cut, based on 1990 emissions, that many environmentalists say is needed, but is still a significant amount.

In most uses, traditional fossil fuels (oil and coal) are still far more abundant and inexpensive than cleaner alternatives (solar, wind, etc.), although their prices don't reflect environmental and health damages.

Under the Lieberman-Warner bill, the caps would be set by granting each company a permit to pollute a certain amount of carbon. At first, most permits would cost nothing. After a few years, such permits to pollute would be auctioned off to the highest bidder, creating a trading market in permits and thus a financial incentive to pollute less.

Politicians like the system better than a straight tax on carbon emissions because it's difficult to estimate the higher cost to consumers of industry paying to meet the caps. Indeed, though, depending on the severity of the government cap, this system puts a cost to every ton of emissions.

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